It’s not all bad news for Research in Motion. Well, it mostly is. But it’s all good news for former employees; the RIM umbrella is transforming into a network of dozens of other startups in the entrepreneurial boomtown of Waterloo.
The fact is RIM has lost 95% of its market value since June 2008. Including one particularly bad day recently, more than $70 billion in market cap has vanished in just four years. But that value isn’t entirely lost to the ether. In the dark matter of RIM’s precipitous fall, a swarm of top employees have lined their pockets with cash earmarked for other startups. In just the last few years, formalized angel capital in the Waterloo area has grown from nearly nothing to tens of millions of dollars. As National Angel Capital Organization Executive Director Bryan Watson put it, “In a smallish town, you’re seeing a massive injection of entrepreneurial spirit.”
One startup to benefit is Willet, the Waterloo-based social media marketing company in Startup Camp Canada, an initiative of Plug and Play in Silicon Valley and Calgary-based Boast Capital. Founder Fraser Harris said he got a cash infusion from multiple RIM send-offs, and one former C-Suite executive is poised to join the company’s board of directors.
“We brought on board some amazing guys,” Harris said. “They built that company up from 15-20 employees to 15,000 employees and a $80 billion market cap. So their expertise is now coming on board for startups.”
Typically securing venture and angel capital in Canada can be frustratingly difficult. Fewer overall investors means a smaller investment pool, which means startups often must deal with more, smaller investments in seed rounds. In turn, they might end up giving away the same amount of equity as a startup in Silicon Valley while only raising half the funds — meaning a valuation at 50 cents on the dollar. As Harris put it, “It’s like you’ve got one hand tied behind your back. But at least you’ve got one good hand.”
But the story of RIM has become a boon for Canadian startups, especially those in the Waterloo Region in Ontario. Among the former executives now running the area’s entrepreneurial landscape are Dennis Kavelman, the former CFO and COO of RIM who left to pursue investment opportunities before becoming COO of Desire2Learn, one of Canada’s hottest startups; Mike Kirkup, the former senior executive who left to head up VeloCity and its incubator and often calls on five or six of his former colleagues with investment opportunities; Tyler Nelson, a former vice president who became CEO for Adenyo, which was sold to Motricity for $100 million; not to mention countless angel investors who would rather you not know they’re looking to give away their money.
“As (RIM) evolves, some of the people who have been there from the beginning are leaving, and that’s creating a need for them to spend their time with something else,” Kirkup said. “That seems to be being more actively involved in angel investing.”
Waterloo’s largest circle of angels, the Golden Triangle Angelnet, came into existence in 2009. Three years later it has swelled to 125 members, a handful of them former RIM employees. As Golden Triangle President Rob Douglas described it, the investment scene has become “significantly more active” in the last two years. He also said he has seen a trend of more of those ex-RIM workers now becoming more active.
“We do have some RIM members who have joined our group,” Douglas said. “They are good members and we are happy to have them, and we’d like to have more of them.”
The exact amount of investment can be tricky to calculate, because only a fraction of all investments are reported. But Golden Triangle, one of about 10 angel networks in the region, claims $13 million in investments; including government subsidy add-ons, the impact is about $23 million. (The Canadian dollar and US dollar are roughly the same.) The total figure, then, could be as much as $100 million, which would put the per-capita investment figure in the region of about $200 per person. Even more conservative estimates would place Waterloo among the most active early-investment regions in the world.
Just three years ago, no formal angel networks existed in the area. There were some investments, but they were small and unorganized. When the Waterloo startup now known as TwitVid came to Plug and Play in 2008, Plug and Play Ventures partnered with Tim Draper of Draper Fisher Jurvetson to capitalize the seed round, said Alireza Masrour, VP of Technology Investments for Plug and Play. No Waterloo funds were to be had. And Plug and Play continues to look for more investment partners in Waterloo to bring companies like Willet into their portfolios.
“We see Waterloo as one of the great hubs of investment going forward,” Masrour said. “Right now we have one Startup Camp company from there. We’d like to have 10.”
The boom tells two stories: one of RIM’s successes, the other of its failures. Research in Motion began turning significant profits in 2004, and in a few years a small Canadian town became the mobile capital of the world. RIM’s market value bulged to more than $80 billion in 2008 as it held tight to its lead in corporate mobile device technology. That infused Waterloo with a new sense of entrepreneurship and — as some of those RIM engineers and long-time managers began to cash out — a new pool of resources for would-be startups.
In Willet’s case, having investors with deeper pockets means keeping down the total number of investors in its seed round of fundraising. It also means an invaluable network of intangible resources that didn’t exist in Waterloo just a few years ago — the same people who guided RIM in its rise are now actively advising Harris and his team as they navigate their market. Dozens of high-level executives have left RIM in recent years, along with countless engineers who rode the company’s stock to the top before cashing in, and while RIM no longer enjoys the services of those experienced partners, lots of other local startups do.
So don’t be surprised when Desire2Learn and Willet become billion-dollar companies, and don’t think that value came out of nowhere. Waterloo investors and entrepreneurs are making more and more connections every day. Just maybe not with a BlackBerry.
Rick Newkirk is an MBA student at Indiana University’s Kelley School of Business. He is currently an intern at Plug and Play Tech Center in Sunnyvale, Calif., working primarily on startup narratives. Before business school Rick was a journalist for seven years, working on the Sports desk at The Courier-Journal in Louisville, Ky., and serving as Editor-in-Chief at the Indiana Daily Student. He graduated from Indiana University with a BA in Journalism.